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Remarks of Harold J. Creel, Jr. to South Carolina International Trade Conference, Charleston, South Carolina, May 21, 2002

May 21, 2002

Remarks of Harold J. Creel, Jr.Chairman, Federal Maritime Commission

South Carolina International Trade Conference

Charleston, South Carolina

May 21, 2002

Thank you for that very kind introduction, and thank you for asking me to speak to you again. I'm delighted to be back here. The only thing missing is my friend Jackie Adamson, but I'm thrilled that she is doing so well.

As the outgoing Chairman, I've got to make my last few moments in the limelight as long and grand as possible. But given the early hour, I promise to try to keep it light and will do my very best not to put you all back to sleep before 10 a.m. I'd like to first say a little bit about what is going on at the FMC of late and then move on to a topic I know you are all most interested in - maritime security.

First the gossip - rumor has it that very soon the FMC will have a new chairman. In fact, the President has nominated Steven Blust to the Commission and intends to appoint him Chairman. We expect that he will be confirmed in the very near future. Given his vast experience in the industry in both the terminal and steamship business, I imagine that some of you are more familiar with his work than I. We at the FMC are sincerely looking forward to working with him and are optimistic that he will serve the agency quite well. As for myself, it is my intention to stay on as a Commissioner-- at least for now.

This has been a busy year for the FMC on several fronts. For the first time in many years, a dispute originating before the Commission was heard by the Supreme Court. I suspect that some of you may be familiar with that dispute, and I have some trepidation in bringing it up here in my home state - the case I refer to is South Carolina Maritime Services, Inc. v. South Carolina State Ports Authority. A Fourth Circuit holding overturned a Commission decision in which the Commission found that the Eleventh Amendment and principles of state sovereign immunity from suit do not bar privately-initiated administrative adjudications against state-run marine terminal operators, in this instance the South Carolina State Ports Authority. In other words, State sovereign immunity kicks-in when private parties bring a complaint against a State before a government agency. Accordingly, the Fourth Circuit ordered the Commission to dismiss the privately-filed complaint against the Ports Authority. The Commission asked the Supreme Court to review the matter and was granted that opportunity.

The case was argued in late February, and with all due respect to those of you present who may have a stake in the matter, I believe the Commission argued ably and persuasively. We expect a decision sometime this summer.

Every time I have spoken to you, I've talked about the Ocean Shipping Reform Act (or OSRA). We now have several years of experience under OSRA, and it seems to be working pretty well. Last fall, the Commission released its OSRA Impact Study to Congress and the public. I am pleased to report that the general response has been quite positive.

Let me mention just a couple of the reporting highlights. In service contracting, the number of service contracts and amendments filed with the FMC has increased by 200% since May 1999. Statistics from some of the major trade lanes show that shippers now are moving approximately 98% of their cargo under service contracts. According to those surveyed, this increase was due mainly to the change from conference control of service contracting to more flexible individual service contracts. The industry also reports that increased confidentiality has enabled shippers and carriers to focus their attention on internal cost factors, individual service requirements and achieving business objectives in contracts rather than on matching the terms of competitors or meeting the market rate. The post-OSRA trade environment has resulted in a stronger focus on market forces. It appears that service contracting is now overwhelmingly the primary method of rate-setting.

While carriers are satisfied with the tariff publication requirements, non-vessel-operating common carriers, or "NVOCCs", are not so enthusiastic. They continue to feel that they are disadvantaged by the tariff publishing requirement and service contracting because while vessel operating common carriers ("VOCCs") are permitted to offer individual service contracts to shippers, NVOCCs are not. Also, because most of the active VOCC rates are contained in confidential service contracts rather than in tariffs, they are not able to review them. In order to be put on equal footing with the VOCCs, they want the tariff requirement to be completely abolished and to have the right to offer service contracts.

It is important to remember that OSRA is still in its infancy. OSRA's impact on liner shipping will continue to take shape over the next few years. And as it does, and as the US ocean shipping industry further acclimates to the new trade environment, OSRA's impact will be easier to ascertain. It is true that issues of concern remain that require ongoing FMC assessment, but we are confident that these issues will be ironed out with time. After three years of operating under this statute, the general consensus appears to be that OSRA is achieving its objectives.

The events of the 11th of September have catapulted the issue of maritime security to the forefront in Washington and at ports around the nation. I'm sure each of you can point to ways in which your day to day business has changed as a result.

Scenarios abound for how a shipping container might be used in a terrorist attack. It is not unreasonable to assume that terrorists have used containers to transport arms and other supplies. We can only imagine what would happen if a container was used to transport weapons of mass destruction. But, what is clear is that commerce by sea would be gravely impaired if such weapons were to enter the U.S. in a container.

Container security is - to quote Admiral Loy of the Coast Guard - "an all-hands evolution." This means that each entity in the supply chain must rise to the challenge. When you think about the route taken by the average container on its way to its destination, the magnitude of the problem is clear. And because there is no such thing as the "average container," the "obvious" solutions may not be universal solutions.

I believe that the vulnerability of our seaports has been something of a revelation for the American public. As you well know, U.S. consumers are not generally aware of the importance of shipping to their daily lives. Now that the profile of shipping and maritime security has been raised to its high point, the people of the United States want fast, 100% solutions. That's what we all want. It's just not as easy as physically opening every box.

There has been a fair amount of criticism from members of Congress and the industry that the federal government is not doing enough, quickly enough, to secure our ports. Needless to say, if our efforts are to be successful, the United States will need to rely on the support and cooperation of the industry as a whole. Let me go ahead and fill you in on what we in Washington are doing and have done so far.

I'll start with the various initiatives proposed and undertaken by the executive branch, and then move on to tell you what Congress has proposed.

As you are well aware, President Bush established the Office of Homeland Security to address domestic security issues. You may not know, however, that the Department of Transportation formed a coalition of federal agencies responsible for maritime transportation to work as a team on the issues of port and maritime security. This coalition, the National Infrastructure Security Committee, is looking at potential solutions in information technology, security technology, business practices and international affairs. The FMC is providing technical advice to the Committee.

Success will come only, I believe, if the various arms of federal government do work together. However, each agency responsible for transportation, by design, has its own role to play and its own field of expertise.

The Commissioner of Customs has proposed a container security initiative which would pre-screen containers before shipment, identify high-risk containers, use technology to pre-screen high-risk containers, and require the use of "smart and secure" containers. He proposes concentrating first on the "mega-ports" of the world to begin to build, in his words, "a new international security standard for sea containers." Such efforts have begun in earnest already.

Admiral Loy has set forth a similar set of principles, reflective of the Coast Guard's inherent law enforcement mandate, from which to build a security strategy. The Coast Guard intends to complete Port Vulnerability Assessments of the 50 most critical ports toward that end. They would like to be able to identify, board, and inspect any "high interest" vessels, and to detect and deter potential threats as close to the beginning of the supply chain as possible.

The Department of Transportation is now home to the newly created Transportation Safety Administration, or "TSA." The TSA has been tasked with a very broad mandate to ensure the safety of public transportation. Thus far, the TSA has focused primarily on the recent requirement of airport security as a federal function. It remains to be seen how the TSA will define itself. Secretary Mineta has spoken recently of its expanding oversight of cargo transport modes.

Though the FMC's involvement in security efforts is fairly tangential, we have been involved from the outset. It is the responsibility of the FMC to license ocean transportation intermediaries, otherwise known as ocean freight forwarders and non-vessel operating common carriers. As part of the licensing process, we investigate the applicant's background and character. We intend to assist in the homeland defense effort by coordinating information we collect with information held by other agencies on suspect individuals and entities. Hopefully, the end product will be a database that assists appropriate federal agencies in developing a risk profile to determine which cargo could pose a threat to our security.

Needless to say, we are prepared to use all of our existing authorities to address this serious threat and to take on any new responsibilities with which we may be tasked.

The universal concept underlying the government's efforts is to push the border outward to ensure that cargo is secure from the point of origin, and to have complete information about incoming vessels long before containers are even loaded on the vessels. This will be crucial to the United States' effort to secure our ports - the accurate and timely flow of information. Instead of clamping shut our borders, the fast transfer of manifest information by carriers to the port of entry in advance of the arrival of a vessel will mean that risks can be quickly identified and targeted without delaying transit of containers which pose little or no risk. I firmly believe that increased transparency from the point of stuffing to the point of loading to the point of offloading is the best way to go about keeping our ports open, efficient, and secure.

Congress is currently tackling several pieces of legislation that aim to increase the security of our seaports and counter the threat presented by terrorism. The original bill, S. 1214, was introduced by Senator Hollings back in July, to establish a program to ensure greater security at United States ports. Senator Hollings has long recognized the importance of the maritime transportation industry, and proposed his legislation in order to facilitate advances on international trade and to ensure that our borders are protected.

Since September 11th, many other bills have been introduced in both the House and Senate, each seeking to improve maritime security. The various proposals seek to increase funding for the federal agencies responsible for ports, including the Coast Guard, U.S. Customs, the Maritime Administration, and the new TSA. Some of the bills mandate specific action on the part of these agencies, including conducting port vulnerability assessments of the major U.S. ports; developing plans for improving the physical infrastructure of ports; credentialing individuals allowed into secure port areas; developing cargo identification and screening systems, including the development of safer containers and seals; and authorizing the Coast Guard to deny entry to any vessel coming from a foreign port that does not maintain effective security measures.

As these bills make their way through the legislative process, Congress is hearing from the affected industry as well as federal agencies, and hopefully will develop a cohesive plan upon which to build a secure and efficient transportation system. For these initiative to be successful, all members of the industry, including the government as well as the private sector, must work together. Together, we can develop a system that targets those containers or vessels that potentially pose a risk, and ultimately, we can work towards an efficient, safe and secure maritime transportation system.

The International Maritime Organization is also working to overhaul the international regulatory framework of maritime security. A committee of the IMO was due to meet a couple of weeks ago to start work on various proposals including one to develop guidelines on disclosure of information regarding vessel ownership and control.

In conclusion, I want to thank you for having me down - once again. I also want to thank you for the support you have given me as FMC Chairman over the last 6 + years and, more importantly, for the true friendships I developed here. You make me proud to be a South Carolinian. Thanks so much.